The terms “bridge” and “hard-money” loans are often used interchangeably in the Los Angeles market. The same lender can offer these loans, but their structures and uses are distinct.
Similar to a hard-money loan, a bridge loan is over a short term. The borrowers can either be homeowners, investors, or businesses needing immediate cash for current obligations or securing a property until permanent financing is in place.
Unlike hard-money loans, the proceeds of a bridge loan are not used for renovations.
- Bridge loans are utilized by individuals and companies to cover the interim period between an obligation and permanent financing.
- Bridge loans can be collateralized by real estate or inventory.
- Homeowners can use a bridge loan toward the purchase of a new home until their current home sells.
- Bridge lenders offer loans to borrowers with excellent credit and low income-to-debt ratios.
Utilization of A Bridge Loan
Unlike a hard-money loan where the merits of the deal take precedence, the underwriting for a bridge loan will also include the borrower’s creditworthiness and income-to-debt ratio.
Private lenders are creative in customizing bridge loans for homeowners with a narrow time frame. In these situations, the equity in the current home can be used toward the deposit on a new home. Both the lender and the borrower will need to fully understand the time periods and whether the borrower has sufficient equity to collateralize the bridge loan.
If a homeowner needs to acquire the new home before the current home sells, then a bridge loan can be structured to roll the mortgages of both homes into one loan. This creative loan platform will give the borrower the benefit of time, remove the stress of losing the new home, and allow for the focus to sell the current home.
These conditions are narrow and specific. In the above situation, the borrower needs excellent credit, at least 25% equity in the current home, and ample liquidity to complete the capital stack.
Businesses utilize bridge loans to fund the gap until long-term financing is in place or to provide working capital until a round of equity financing is closed. The collateral for the loan can be business-owned real estate, inventory, or other capital assets.
Bridge Loans vs. Conventional Loans
To accommodate gap and interim financing, bridge lenders have faster application, approval, and funding processes than conventional lenders. For this convenience, borrowers will be subject to higher rates and fees.
Borrowers are willing to accept these higher rates and fees when accelerated funding is needed. The ability to leverage the equity in real estate or capital assets will enable the borrower to maintain more liquidity.
The lenders and borrowers of bridge loans carefully determine the amount of time in the gap period.
Time is of the essence and the key to positive leverage.
If You Are Considering a Bridge Loan, You Must Contact A Reputable Hard Money Lender in Los Angeles Today
PB Financial Group is a premier, direct hard-money and bridge lender that has provided quick funding since 2007 and have closed over 2,700 loans. We aim to satisfy your financing needs efficiently.
For further information or to schedule a consultation please contact PB Financial Group at 877-700-3707 or visit www.CalHardMoney.com to learn more.